BackOil rebounds from losses on low risk of US debt ceiling, sour crude weakens despite OPEC+ cuts
Broadly, the sentiment remains mixed as investors juggle optimism over avoidance of a US debt default with inflation data that could signal more interest rate hikes from the global central banks.
PremiumOil prices rebounded on May 19 from losses of more than 1 per cent the previous session as investors turned cautiously optimistic over the fading risk of a US debt default. However, Middle East crude prices in Asia fell to their lowest level in months, despite OPEC+ production cuts, as Asian refiners held back the spot purchases, while China and India bought cheap Russian oil.
Brent futures rose 69 cents, or 0.9 per cent, to $76.55 a barrel, while West Texas Intermediate US crude climbed 56 cents, or 0.8 per cent, to $72.42. Broadly, the sentiment remains mixed as investors juggle optimism over avoidance of a US debt default with inflation data that could signal more interest rate hikes from the global central banks.
Also Read: China’s Demand for Oil Hits Record as IEA Raises Global Forecasts
US debt ceiling risk on oil markets
Earlier this week, US President Joe Biden and Speaker of the House of Representatives Kevin McCarthy reiterated their aim to strike a deal to raise the $31.4 trillion federal debt ceiling, agreeing to talk on May 21. According to Fed policymakers, US inflation does not seem to be cooling fast enough to allow the Federal Reserve to pause its interest-rate hike cycle.
"I think markets have been pricing out the risks of a U.S. debt default, which translates to a more risk-on environment and some dip-buying in Brent crude from previous oversold conditions," Yeap Jun Rong, a market strategist at IG told Reuters.
The potential for the additional rate hikes increases concerns about demand weakness in the United States, said analysts from the National Australia Bank. The analysts said, however, there is upside to prices as they expect China's demand to continue improving throughout 2023, which should offset the slowdown in OECD demand.
Sour crude prices weaken despite OPEC+ cuts
Benchmark Dubai crude's premium fell to a four-month low of 70 cents a barrel above Dubai quotes on May 18, while Qatar has set al-Shaheen's July term price at a 27-months-low after increasing supplies. The fall in prices may prompt top exporter Saudi Arabia to cut prices for its term cargoes to Asia for a second straight month in July, according to traders. Weak refining margins last month also prompted some Asian refiners to trim output, they added.
The Organization of the Petroleum Exporting Countries and their allies (OPEC+) will next meet in early June. Iraq's oil minister had said he did not expect OPEC+ to make further output cuts.
Unlike Europe and the US where sour crude prices have strengthened because of the Russia oil boycott and strong demand for alternative supplies, China and India, the world's number 1 and number 3 crude importers respectively, are buying record volumes of Russian crude at the highest prices since the December embargo.
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